In this study, we investigated whether the bone marrow cells-collagen matrix complex induced bone in vivo. Bone marrow cells which were harvested from rat femur, differentiated to osteoblasts on collagen matrix. Under the conventional culture condition, bone marrow cells showed fibroblastic-form, and did not express the typical osteoblastic phenotypes. On the contrary, bone marrow cells on collagen matrix showed polygonal-form, and expressed high alkaline phosphatase activity and synthesized osteocalcin which were markers of osteoblastic phenotypes. Next bone marrow cells-collagen matrix complexes were implanted into the subcutaneous region of nude mouse. Until week two after implantation, collagen matrix remained, and connective tissue were formed between them. On week three, bone was formed, and bone marrow was recognized between bone on week four. No cartilage was formed for the duration of experiment. These findings indicate that bone marrow cells -collagen matrix formed bone in a direct bone formation manner. Bone marrow cells differentiated to mature osteoblasts before the implantation is a prerequisite for the bone formation in vivo. Bone marrow cells themselves or preosteoblasts did not induce bone when combined with collagen matrix and was implanted in vivo. In this project we succeeded to induce bone by the bonemarrow cells and collagen matrix. The precise mechanism of bone formation by bone marrow cells and collagen matrix is unclear. Therefore we are going to continue this project and would like to develop a new therapy for cure the bone defect.